The Reserve Bank of India (RBI) on 25 October raised interest rates by 25 basis points and lowered the economic growth forecast to 7.6 per cent for the current fiscal even as it expressed hope that inflation will start coming down from December. RBI Governor Duvvuri Subbarao also deregulated savings bank deposit rates with immediate effect.
The policy is expected "to continue to anchor medium term inflation expectations", while stimulating investment activity to support growth.
Borrowers, who are livid at repeated rate hikes, can heave a sigh of relief as the RBI hinted at a reversal of policy stance by saying the likelihood of a hike in December is "relatively low".
The central bank has kept other key rateand ratio — Bank Rate and Cash Reserve Ratio (CRR) — unchanged at 6 per cent each. It also retained the Statutory Liquidity Ratio (SLR) at 24 per cent.
Earlier in May, RBI had raised the savings deposit rates to 4 per cent from 3.5 per cent.
The RBI has also proposed to notify banning prepayment penalty on floating rate home loans, as recommended by the Banking Ombudsman recently. The policy document further stated that RBI will issue the final guidelines on credit default swaps by November-end.
Economic Growth Rate
Factors like weakening global macroeconomic outlook and high domestic inflation will pull down the economic growth rate further, RBI said while lowering the Gross Domestic Product (GDP) forecast for the current fiscal to 7.6 per cent from its earlier projection of 8 per cent.
The central bank had earlier projected the Indian economy to grow by 8 per cent in 2011-12, lower than 8.5 per cent recorded in 2010-11.
The risks to the policy emanate from worsening global macro scenario, commodity prices and increase in government spending which could crowd out private investment, it said.
An important policy decision RBI announced is the freeing of savings bank deposit rates with immediate effect, the last bastion of the regulated interest rate regime.
The RBI said: "While growth in advanced economies is already weakening, there is a risk of sharp deterioration if a credible solution to the euro area debt problem is not found."
Rate of Inflation
In addition to inflation, the RBI said slowdown in project investments was also impacting growth. The overall inflation has remained above 9 per cent since December 2010. It was 9.72 per cent in September.
Elevated inflationary pressures are expected to ease from December 2011. The projection for Wholesale Price Index (WPI) inflation for March 2012 is kept unchanged at 7 per cent.
Food inflation, which account for 14 per cent in the overall inflation, stood at a six month high of 10.60 per cent
Significantly, despite the fall in inflation during the week, prices of onions went up by19.68 per cent on an annual basis while fruits turned 15.84 per cent dearer. Alongside, milk prices also rose by 10.76 per cent, as did prices of eggs, meat and fish by nearly eight per cent. On a yearly basis, cereals and vegetables were also dearer by 4.77 per cent and 4.31 per cent, respectively.
According to the WPI data, while inflation of overall primary articles stood at 11.13 per cent for the week ended July 9, down from 11.58 per cent in the previous week, inflation of non-food articles was pegged at 15.50 per cent for the week, up from 15.20 per cent.
The RBI also indicated that it might not go in for another rate hike in its midquarterly review in December 16, provided the inflation does not shoot up further. According to the RBI, if the inflation trajectory conforms to projection, further rate hikes may not be warranted. It stated that concerted policy focus is needed to generate adequate supply response in respect of items such as milk, eggs, fish, meat, pulses, oilseeds, fruits and vegetables.
The policy is expected "to continue to anchor medium term inflation expectations", while stimulating investment activity to support growth.
Borrowers, who are livid at repeated rate hikes, can heave a sigh of relief as the RBI hinted at a reversal of policy stance by saying the likelihood of a hike in December is "relatively low".
The central bank has kept other key rateand ratio — Bank Rate and Cash Reserve Ratio (CRR) — unchanged at 6 per cent each. It also retained the Statutory Liquidity Ratio (SLR) at 24 per cent.
Earlier in May, RBI had raised the savings deposit rates to 4 per cent from 3.5 per cent.
The RBI has also proposed to notify banning prepayment penalty on floating rate home loans, as recommended by the Banking Ombudsman recently. The policy document further stated that RBI will issue the final guidelines on credit default swaps by November-end.
Economic Growth Rate
Factors like weakening global macroeconomic outlook and high domestic inflation will pull down the economic growth rate further, RBI said while lowering the Gross Domestic Product (GDP) forecast for the current fiscal to 7.6 per cent from its earlier projection of 8 per cent.
The central bank had earlier projected the Indian economy to grow by 8 per cent in 2011-12, lower than 8.5 per cent recorded in 2010-11.
The risks to the policy emanate from worsening global macro scenario, commodity prices and increase in government spending which could crowd out private investment, it said.
An important policy decision RBI announced is the freeing of savings bank deposit rates with immediate effect, the last bastion of the regulated interest rate regime.
The RBI said: "While growth in advanced economies is already weakening, there is a risk of sharp deterioration if a credible solution to the euro area debt problem is not found."
Rate of Inflation
In addition to inflation, the RBI said slowdown in project investments was also impacting growth. The overall inflation has remained above 9 per cent since December 2010. It was 9.72 per cent in September.
Elevated inflationary pressures are expected to ease from December 2011. The projection for Wholesale Price Index (WPI) inflation for March 2012 is kept unchanged at 7 per cent.
Food inflation, which account for 14 per cent in the overall inflation, stood at a six month high of 10.60 per cent
Significantly, despite the fall in inflation during the week, prices of onions went up by19.68 per cent on an annual basis while fruits turned 15.84 per cent dearer. Alongside, milk prices also rose by 10.76 per cent, as did prices of eggs, meat and fish by nearly eight per cent. On a yearly basis, cereals and vegetables were also dearer by 4.77 per cent and 4.31 per cent, respectively.
According to the WPI data, while inflation of overall primary articles stood at 11.13 per cent for the week ended July 9, down from 11.58 per cent in the previous week, inflation of non-food articles was pegged at 15.50 per cent for the week, up from 15.20 per cent.
The RBI also indicated that it might not go in for another rate hike in its midquarterly review in December 16, provided the inflation does not shoot up further. According to the RBI, if the inflation trajectory conforms to projection, further rate hikes may not be warranted. It stated that concerted policy focus is needed to generate adequate supply response in respect of items such as milk, eggs, fish, meat, pulses, oilseeds, fruits and vegetables.
No comments:
Post a Comment